GUIDANCE IN PRACTICAL RISK MANAGEMENT

The guidance on how the process should be undertaken & executed in order to provide the project manager or client with meaningful, repeatable, supportable & useful information on which future decision can be based are as follows:Decision making reparation for risk management !isk identification !isk anal"sis !isk outputs #odels & resultant outputs $ommunication

i) ii) iii) iv) v) vi) vii)

DECISION MAKING
%nitiating & managing construction projects re&uires decisions to be made' !isk management is a fundamental techni&ue used to facilitates he decision making process' %t ma" not alwa"s be possible to have complete information before taking decisions( however , it is important to recogni)e that the knowledge is incomplete & to tr" to assess the extent of the gaps & the potential conse&uences of taking action' %t is necessar" to distinguish between the extent of knowledge & the impact of decision'

DECISION MAKING (Contd)

Two common problems can arise' *irst a tendenc" to dela" making a decision & second a tendenc" to seek more knowledge on the assumption that this will facilitate decision making' +ormall" ,eeking more information dela"s the decision making process further' -xperience shows that introducing dela" into a construction project is often, though not alwa"s, detrimental' %t is therefore helpful to distinguish between t"pes of decisions' There is no guarantee that the decisions would be better if decision is taken under conditions of complete information( but it would ensure that the major risks are not overlooked' %mprovements in project management depend upon improvements in the understanding, appreciation & execution of this decisions'

PREPARATION FOR RISK MANAGEMENT

.roadl", risk management consists of potential risk source identification, risk impact assessment & anal"sis, & a managerial response to the risk in the context of the project' There are a large number of variations on this general theme, but one thing that all have in common is the risk must be managed in a s"stematic wa" via a number of stages, although the process should be regarded as iterative & the phases are not alwa"s se&uential' The scope of the project & the plan to be modified & changed, as the risk management process progresses & it ma" also var" due to other external factors, which in turn ma" re&uire changes in the identification or assessment phases' /suall" a top-down approach is adopted & the project objectives are clearl" defined, sometimes with the aids of the earl" stages of risk management process itself' 0nce the objectives are known, a few sample &uestion can be asked, as brought out below:

PREPARATION FOR RISK MANAGEMENT (Contd)

i) ii) iii) iv) v) vi) vii) viii) ) The &uestions to be asked in identif"ing the riskier projects are: %s the clients business or econom" sensitive to outcome of the project in terms of performance & &ualit" of its product, capital cost & timel" completion1 Does the project re&uire new technolog" or the development of existing technolog"1' Does the project re&uire novel methods1 %s the project large &2or extremel" complex1 %s there an" extreme time constraint1 3re the parties involved sufficientl" experienced1 %s the project sensitive to regulator" changes1 %s the project in a developing $ountr"1 Together these &uestions help to identif" an" projects, which should definitel" not be undertaken b" the parties & those which, although risk", should be examined further b" a rigorous identification of potential risk sources'

RISK IDENTIFICATION
%t is stressed that perfect predictions of future is not the goal of risk identification, rather it is the recognition of potential sources of risk for our particular project, which are likel" to have a high impact on the project & high probabilit" of occurrence' These are filtered out of a longer list of risk sources, people in workshops, historical data & advisor" checklists The most preferable method of 'identif"ing risk is the use of brainstorming, or similar techni&ues, which focuses each project team member on the risks specific to the project' The process must be carefull" managed to remove individual & group biases'

RISK IDENTIFICATION (Contd)

There is also the danger that the group does have sufficient collective experience to identif" all the ke" risks, even in a general form' This is wh" it is common practice to use external $onsultants or facilitators to prompt & guide sessions to produce better balance assessment of project risk sources' These potential sources of risk will form the framework against which relative riskiness of various project options can be assessed' To do this, some form of &uantitative anal"sis is usuall" undertaken'

RISK ANAL!SIS
There are man" methods of anal"sis, which re&uire different levels of project knowledge & different data' These can range from the ranking of risks, which gives their relative importance but no &uantifiable value, through to pseudo-&uantitative techni&ues, which introduce time or other parameters, to full simulation methods which provide ranges of programme durations, costs & rates of return' Though different methods will give answers in different formats, but the inherent level of actual risk associated with a real project is the same whichever method is used'

RISK ANAL!SIS (Contd)

The choice of method, or methods, or to be used should be governed b" the appropriateness to the project & the circumstances at the time of undertaking the risk anal"sis' ,imple & rapid methods of risk anal"sis should be undertaken as a first step, onl" progressing to more complex, timeconsuming & expensive methods as necessar"' %f major risks are present in the project then it is likel" that a full computer-based probabilistic anal"sis should be undertaken, if the impacts of the risks can be &uantified' The process of translating computer software output into viable project decisions is significant step in the risk management of projects & is too often neglected b" practitioners'

RISK OUTPUTS
The t"pes of output which are produced b" computer-based risk anal"sis packages & describes how to appl" to them to, explaining the ke" features & report options, communicating these findings in an appropriate form & considering their use in decision making' #onte-$arlo simulation produce results in tabular format & graphical format( usuall" latter is preferable' T"picall", three graphs are of interest: risk exposure, downside risks & risk contributors within each of the main project areas' The project4s risk exposure is the most important indicator of the project4s riskiness'

MODELS
3s a general rule, models should be kept as simple as possible' %t is good practice to identif" the main risks separatel" & combine most of the other elements & treat them as single risk' $ost increases might be directl" related to dela"s' 5hile a full critical path anal"sis is not essential, it is important to understand the main activities which occur in a construction project & their logical se&uence' *or risks, it is useful to model the interfaces between ke" elements correctl", particularl" as this is often a source of dela"'

MODELS (Contd)
The main interfaces include those: i) .etween design groups( ii) .etween design groups & specialists( iii) .etween design & procurement( iv) .etween design & construction( v) .etween the project manager & the client' %n case where a full life c"cle of the project is being subjected to risk anal"sis, such as the 6+ew %ndustrial lant7, activities must be included in sufficient detail for the operation, maintenance & decommissioning phases'

COMMUNICATION
%t is ver" important that the risk management process is handled in such a wa" that the project personnel are made to feel that the" 6own7 the results' 5hatever sophisticated risk management software packages are used, it is the people in the project management team who make decisions & it is a primar" function of risk management to communicate clearl" to all members throughout the duration of the project' 5ithout effective communication, risk management cannot operate' %ndeed, one of the biggest risks on an" project is a lack of communication which can lead to a lack of shared understanding of the project & its objectives'

COMMUNICATION (Contd)
The team need a high degree of involvement in the identification & &uantification phases, & the results emerging from the anal"sis must be clearl" understood & communicated within the project organi)ation' This is crucial for an" projects which wants to succeed using risk management as a tool to improve project monitoring, control & overall performance' *re&uentl", the communication can be undertaken using the risk output diagrams' /sing updated models, & other appropriate formats, information about the riskiness of a project can be communicated &uickl", simpl" & easil"'